Anatomy of Cojuangco’s stake in San Miguel

MANILA, Philippines – Weeks before some owners of San Miguel Corporation sell their shares in one of the country’s biggest and most powerful conglomerates to the public, Eduardo “Danding” Cojuangco Jr. was favored in a Supreme Court decision that removed legal issues on his ownership claim over almost one-fifth of the company.

In a recent en banc decision, the high court ruled that Cojuangco’s claim on his 17% stake in San Miguel was not illegal since he did not use coco levy funds to acquire it in 1983.

The court also said Cojuangco did not break the rules when he obtained a loan from United Coconut Planters Bank (UCPB), which was built from coco levy funds, to finance his San Miguel acquisition.

Cojuangco was the brains behind a Marcos-era system of imposing a levy, or some kind of tax, on every copra sold by coconut farmers from 1973 to 1982. These coco levy funds were designed to develop the industry, but the Aquino government, which replaced Marcos, said these were funneled into different Cojuangco-controlled companies through dummies and corporate layers.

For 25 years – from 1986 to 2011 – Cojuangco, his allies and the government, through the Presidential Commission on Good Government (PCGG), waged a long and winding court battle.

Their disputes focused on the following:
- nature of the coco levy (Is it public or private funds?)
- the right to elect representatives in the board of companies with contested shares (Who has the right to vote the shares?)
- who owns the shares

Battle for UCPB

How the courts decided on Cojuangco’s stake in San Miguel was influenced by the courts’ decisions on his parallel and related claim over UCPB.

The PCGG has asserted that coco levy funds were coursed through the so-called Coconut Industry Investment Fund (CIIF) companies that invested in UCPB and about two-dozen other corporations. (However, it was ACCRA Law Firm, counsel of Cojuangco, that represented the CIIF in these coco levy funded corporations.)

The contested shares in UCPB account for a total of 72.2% stake. Of this, 64.98% were under the CIIF companies and some “one million coconut farmers.” The balance of 7.22% was registered under Cojuangco.

Cojuangco asserted that his minority stake was his compensation for brokering the purchase of First United Bank (now UCPB) in 1975 from the original owners, and the sale of 64.98% stake to the coco levy-funded Philippine Coconut Authority (PCA).

All these shares were sequestered in 1986, when the People Power Revolution led Marcos and Cojuangco to go on self-exile abroad.

In the 1990’s, private respondent COCOFED, the CIIF companies, which was represented by ACCRA, and the PCGG fought for the right to vote the shares and elect directors in the UCPB board.

Fast forward to 2001. The Supreme Court ruled that, while ownership remains in limbo, the government should vote the UCPB shares.

It was also the first time that the high court said the coconut levy funds are prima facie public funds.

The Sandiganbayan, taking its cue from the high court, ruled in 2007 that the CIIF shares in UCPB belong to the government. Eventually, even Cojuangco’s shares were declared to also be government-owned.

Battle for San Miguel

While Cojuangco lost the UCPB war, he was on his way to winning the San Miguel battle.

In 1998, the Supreme Court gave its nod for Cojuangco to vote the 20% (eventualy whittled down to 17%) in San Miguel. He was eventually voted as chairman.

The court has noted that PCGG could not justify why the government should vote this bloc of shares that Cojuangco has claimed.

Cojuangco claimed that he acquired this 20% personal stake in San Miguel through a UCPB loan, which PCGG said was illegal since it this violated rules restricting bank officials from taking advantage of their own deposits and assets. Cojuangco said he has already paid this loan.

Despite the Supreme Court decision in 2001 that the coco levy are public funds, Cojuangco retained his post as San Miguel chairman since other shareholders, spefically Kirin Beer of Japan, supported him.

Three years after, the Sandiganbayan ruled that the other contested shares of bloc in San Miguel – representing 27% (eventually reduced to 24%) that was placed under the coco levy funded CIIF companies – belonged to the government.

In February 2010, however, the high court allowed the government to convert its common shares, which have voting rights, into interest-bearing preferred shares, which do not have voting rights.

This decision paved the way for San Miguel to proceed with its plan to diversify away from its food and drinks business and into power, telecommunications, infrastructure, and mining.

Meantime, the anti-graft court ruled in favor of Cojuangco in 2007. The Sandiganbayan said PCGG could not prove that Cojuangco bought his San Miguel shares using coco levy funds.

In April 2011, the Supreme Court affirmed the Sandiganbayan’s decision and sealed Cojuangco’s claim on the shares.

By May 2, some San Miguel existing shareholders can sell their shares to the public as part of the diversifying conglomerate’s efforts to raise $850 million for its foray into new businesses.